Marketing Management

Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Second semester
Marketing Management
Marketing Environment

Philip Kotler :
“A company marketing environment consists
of the factors and forces that affect the
company’s ability to develop and maintain
successful transactions and relationships with
its target customers”.

3
Micro environment Macro environment
Internal environment
Organization Suppliers Demographic
Customers Competitors Economic
Public Intermediaries Technological
Political & legal
Natural
Socio-cultural

4
Suppliers
• Supply raw materials, plant and equipments, human
resources, technology.
• Their strategies affect ours as if they increase prices,
we have to revise price structure.
• Decisions like ‘make or buy’ depend upon suppliers.

5
Intermediaries
• Wholesalers, retailers, agents, transporters, etc.
• This is a choice of channel of distribution.
• An intermediary (or go-between) is a third
party that offers intermediation services between
two parties.
• For example, banks act as intermediaries between
depositors seeking interest income and borrowers
seeking debt capital.

6
Customers
• Purchase requirements vary from customer to
customer.
• Dealers buy for resale.
• Government buys for public welfare, defence.
• Individual customers are influenced by cultural,
social and psychological factors.
• They are large in number, scattered, poorly informed,
buy in small quantities and frequently are guided by
personal considerations.

7
Competitors
• Supply similar products or substitute products.
• Competitors adopt different actions for getting
greater share of markets.
• All firms compete with each other for
consumers buying power.

8
Public
• Financial public: financial institutions, investment houses,
insurance company.
• Government public
• Citizen action public: consumer organizations, environmental
groups, minority groups, etc.
• General public: public image
• Internal public: Employees, Board, labour unions, press and
media.

9
Macro environment
Economic
Economic forces influence both marketers and the
consumers.
Economic forces include –
• Competition – monopoly, oligopoly
• Buying power
• Willingness to spend
A change in economic policies like Fiscal policy, interest
rate, price levels etc creates an impact on business.

10
Demography
• Demography gives ‘consumer profile’.
• It is the study of population in respect of its size,
density, location, age, race, occupation, marital status,
education, sex composition etc.
• All these factors influence marketing decisions.

11
Demography - continued
• Buying habits are determined by income, education,
age, family composition and other demographic
factors.
• 75% of population lives in villages.
• Education level is increasing- Women as decision
makers in ads.
• It helps in - Market segmentation, demand
forecasting, determination of market potential.

12
Technology
• It has a definite impact on buyers and marketers decisions.
• It provides mechanical, physical and numerous other processes
which help in attaining higher standard of living.
• It has adverse effects like pollution, unemployment, increase
in crime rate, etc.
• Marketers must be aware of new developments in technology.
• Technology creates both wonders and weapons.
• For example:- Wonders - Laptops, Digital watches
Weapons – Atomic bomb, Nuclear missiles.

Political Environment
• Government actions which affects the operations of a company
or business.
• These actions may be on local, regional, national or
international level.
• Business owners and managers pay close attention to
the political environment to gauge how government actions
will affect their company.
• For Example – Employees salary acc. to 6th Pay Commission.

Natural Environment
• Natural Forces involves the natural resources that are needed
as inputs by marketers or that are affected by marketing
activities.
• Natural Environment Trends: -
• Shortage of raw materials – Limited quantities of non-
renewable resources.
• Increased pollution – Waste disposal, air/water pollutants.
• Environmentally sustainable strategies – GREEN movement.

Social Environment
• Social responsibility has crept into the marketing
literature as an alternative to the market concept.
• Socially responsible marketing is that business firms
should take the lead in eliminating socially harmful
products
• For Example – Employment generation, Providing
quality goods at reasonable prices.

Socio-Cultural Environment
• The socio-cultural environment involves forces that
affect our values, beliefs, perceptions and behaviour.
• Culture is a broad phenomenon and comprises of
different elements including:-
➢ Social institutions
➢ Religious groups
➢ Families, friends, Occupation, Interest groups.

Introduction
• We need to set price when we have a new product, or
when we enter a new market with an existing product
• The term price denotes money value of a product. It
represents the amount of money for which a product
can be exchanged.

Significance of Pricing
• Price is an important element of marketing mix of a
firm.
• Pricing policy of a firm is a major determinant of its
success.
• Pricing strategy effects the competitive strength of a
firm.

Pricing and Consumer Psychology
• Reference price- Customers hadly remember exact price of
any product. They perceive price on the basis of internal
reference (Memory and previous experience) or external
reference ( Price of the other products that are kept together in
the store).
• Price-Quality Inferences- Higher is the price of the product
higher is the its perceived quality.
• Price Cues:- Product whose price ends in 9 that is 1999 or
1599 gives a cue to the customer that the seller is offering a
discount or they assume price to be at lower side. Price that
ends in a Zero are easy for customers to remember.

Pricing Process
• Selecting the pricing objective
• Determining demand
• Estimating costs
• Analyzing competitors – costs, prices, offers
• Selecting a pricing method
• Selecting the final price

Setting the pricing objective
• Profit objectives e.g.
– Survival
– Maximisation of profit.
• Volume objectives e.g.
– Market share growth
• Other objectives e.g.
– Match competitors’ price
– Non-price competition

Determining Demand
Each price will lead to a different level of demand and have a
different impact on a company’s marketing objectives.
Demand and price are inversely related i.e.
Higher the price, lower the demand
Company needs to consider :-
• Price sensitivity
• Price elasticity of demand

What is price elasticity?
• This determines the changes in demand with unit
change in price
• If there is little or no change in demand, it is said to
be price inelastic.
• If there is significant change in demand, then it is said
to be price elastic.
23

Demand is likely to be less elastic when
• There are few or no substitutes.
• Frequent or occasional purchase of products.
• Buyers are slow to change their buying habits.
• Buyers think that the higher prices are justified.
24

Demand Curve

Selecting a Pricing Method
• Pricing Methods can be classified into four different categories
• Demand Oriented pricing
• Cost oriented pricing
• Competition or market driven pricing
• Value based pricing

Demand Oriented Pricing
• Demand oriented pricing as the name suggests uses the
customer demand to set up the price in the market. We first
determine the customer’s willingness to pay for any good or
service.
• A high price is charged when the demand is high and a low
price is charged when the demand is low. In case of service,
high price is maintained during the peak hours and vice-versa.
• Example- Rajdhani and flights

Cost-Oriented Pricing
Cost-Plus Pricing
• Most common cost-based approach
• Marketer figures all costs for the product and then adds desired
profit per unit
– price is calculated by adding a pre-determined percentage
to the cost
Steps in cost-plus pricing
• Estimate unit cost
• Calculate Profit
– Calculate profit on cost

Cost Plus Pricing Excerpt
• Fixed costs = $2,000,000
• Number of Shoes produced = 400,000
• Fixed costs per unit = $5
• Variable costs per unit = $15
• Profit as % of costs = 25%
Cost- Plus Pricing
– Price = total cost + (total cost * markup percentage)
– Price = $20 + ($20 * .25) = $20 + $5 = $25

Competition or Market based Pricing
• Prices based on those of a competitor rather than
on consumer’s demand and one's own costs.
• Ex- Pepsi and Coke.
• Customary price- There are certain products for which
customary price level exists. For example sweets (Toffee-2 for
Rs 1). A selller has to adjust his product cost by any mean to
reach this customary price. If a seller is asking a higher price
for its product than that of customary, the demand for such
product may decrease.
• Competition pricing leads to price wars which is a non
profitable situation.

Cost-oriented v/s. Value oriented Pricing
• Cost-Oriented Pricing
• Price is determined on
the basis of cost.
• A reasonable margin of
profit is added to the
cost of production.
• Applicable for non
branded products.
• Simple to apply as it is
easy to estimate cost.
• Value-Oriented Pricing
• Price is determined on the
basis of buyer’s perceived
evaluation of the product.
• A higher margin of profit
is added.
• Generally applicable for
branded products.
• Complex method as it is
hard to identify buyer’s
perception of value.

Pricing Strategies
• Competitive Pricing
• Penetration pricing
• Market Skimming Pricing
• Follow the leader pricing.
• Discriminatory or Dual Pricing
• Premium or prestige pricing
• Psychological Pricing
• Geographic Pricing

Market Penetration Pricing Strategy
• Price is fixed below the competitive level to attain a
higher market share and to gain the popularity of the
brand.
• Can be used at the time of introduction of the
product. It ensures higher volume of sales.

Market Penetration Pricing Strategy
• Aggressive market strategy and is likely to be successful under
the following condition
• Product has a highly elastic demand
• Production is carried out on a large scale to achieve low cost
of production per unit.
• There is a strong competition in the market.
Merits
• Higher sales volume is achieved.
• Helps in developing brand preference.
• Discourage entry of new substitute.
• Helps in fighting the main competitors.

Market Skimming Pricing Strategy
• Higher prices are charged during the initial stage of a
new product.
• Demand is likely to be more inelastic with respect to
price.
• Promotional expenses are quite high.
• Strategy is adopted to skim the cream of the market
that is relatively insensitive to price.

Pricing Strategies
• Keep-out Pricing- It aims at discouraging the other substitutes
from entering the market by offering product at a cost which
is even less than its actual cost of production and distribution.
• Follow the Leader Pricing- A pricing strategy in which a
business sets the price of its product and service offerings to be
the same as its largest competitor. A follow-the-leader price
strategy can entail either raising or lowering the price. The
competitor may choose to counter this strategy by continually
raising and lowering prices to make matching difficult.

Pricing Strategies
• Discriminatory or dual pricing strategy- Offering different
pricing in different countries with different currency. It also
includes offering different price in the same country.
• Discrimination can be charging maximum that each customer
is willing to pay.
• Discrimination can be on the basis of units of product
purchase.
• Discrimination can be on the basis of consumer group.

Geographical Pricing
• Same product priced differently for consumers
located at different geographies.
• Pricing includes transportation cost.

The Role of Marketing Channels in
Marketing Strategy
– Facilitate the exchange process by cutting the
number of contacts necessary
– Adjust for discrepancies in the market’s assortment
of goods and services via sorting
– Standardize exchange transactions
– Facilitate searches by both buyers and sellers

Types of Marketing Channels
• Marketing channel: system of marketing
institutions that promotes the physical flow of
goods and services, along with ownership title,
from producers to consumer or business user; also
called a distribution channel
• Marketing intermediary: wholesaler or retailer
that operates between producers and consumers or
business users; also called a middleman
• Wholesaler: marketing intermediary that takes
title to goods and then distributes these goods
further; also called a jobber or distributor

Consumer Goods

Business Goods
Services

Channels Using Marketing Intermediaries
– Producer to wholesaler to retailer to consumer
– Producer to wholesaler to business user
– Producer to agent to wholesaler to retailer to
consumer
– Producer to agent to wholesaler to business user
– Producer to agent to business user

13-44
• Factors influencing Marketing Channel Strategies
Characteristics of Short
Channels
Characteristics of Long
Channels
Market
factors
Business users Consumers
Geographically concentrated Geographically diverse
Extensive technical knowledge
and regular servicing required
Little technical knowledge and
regular servicing not required
Large orders Small orders
Product
factors
Perishable Durable
Complex Standardized
Expensive Inexpensive

13-45
Characteristics of Short
Channels
Characteristics of Long
Channels
Producer
factors
Manufacturer has adequate
resources to perform
channel functions
Manufacturer lacks adequate
resources to perform
channel functions
Broad product line Channel control important
Limited product line Channel control not
important
Competitive
factors
Manufacturing feels
satisfied with marketing
intermediaries’ performance
in promoting products
Manufacturer feels
dissatisfied with marketing
intermediaries’ performance
in promoting products

• Determining Distribution Intensity
– Distribution intensity: number of intermediaries
through which a manufacturer distributes its
goods.

• Intensive distribution: channel policy in which a
manufacturer of a convenience product attempts to
saturate the market.
• Selective distribution: channel policy in which a
firm chooses only a limited number of retailers to
handle its product line.
• Exclusive distribution: channel policy in which a
firm grants exclusive rights to a single wholesaler or
retailer to sell its products in a particular geographic
area.

Major Modes of Transportation
– Railroads
– Motor Carriers
– Water Carriers
– Pipelines
– Air Freight
– Freight Forwarders and Supplemental Carriers
– Intermodal Coordination

• Comparison of Transport Modes
Mode Speed Depend-
ability in
Meeting
Schedules
Frequency
of
Shipments
Availabil-
ity in
Different
Locations
Flexibility
in
Handling
Cost
Rail Average Average Low Low High Average
Water Very slow Average Very low Limited Very high Very low
Truck Fast High High Very
extensive
Average High
Pipeline Slow High High Very
limited
Very low Low
Air Very fast High Average Average Low Very high

• Protective Packaging and Materials Handling
– Materials Handling: set of activities that
move production inputs and other goods within
plants, warehouses, and transportation
terminals.
• Unitizing: process of combining individual
materials into large loads for easy handling.
• Containerization: process of combining
several unitized loads into a single, well-
protected load.

Rural Marketing
• Indian economy is rural economy. Therefore, India
has a lot scope for rural markets. The Indian economy
can be classified into rural and urban sector.
• Rural sector again can be classified into agricultural
and non-agricultural sectors. Crop cultivation, animal
husbandry, dairying, fisheries, poultry and forestry
are coming under agricultural sector.
• Industry, business and services come under non-
agricultural sector.

Scope of Rural Marketing
• Rural marketing has two major areas, namely,
• marketing of agricultural products, from rural to urban areas,
• marketing of manufactured goods and services in rural areas.
• In other words, rural marketing is a two-way marketing
process. One is the flow of goods from rural to urban areas and
the other one is flow of goods and services from urban to rural
areas.
• Rural marketing also includes the flow of goods and services
within the rural areas itself. The rural to urban transactions
include the agricultural products like food gains, oilseeds,
cotton, sugarcane, tobacco, etc.

Scope (Contd.)
• The urban to rural transactions cover the goods and
services of all agricultural inputs. Fertilizers,
pesticides, seeds, tractors, consumer durables like
radio, bicycle, mopeds, electrical and electronic
goods, etc. are transacted from urban to rural.

Features/ Characteristics of Indian
Rural Markets
• India is a peculiar country in the world. People from different
religion, culture, and race live together. Therefore, Indian rural
markets have some special features. The important features of
Indian rural market are given below:
• ➢ Large, Diverse and Scattered Market: Rural market in
India is large, and scattered into a number of regions. There
may be less number of shops available to market products.
• ➢ Major Income of Rural consumers is from Agriculture:
Rural Prosperity is tied with agriculture prosperity. In the
event of a crop failure, the income of the rural masses is
directly affected.

• ➢ Standard of Living and Rising Disposable Income of the
Rural Customers: It is known that majority of the rural
population lives below poverty line and has low literacy rate,
low per capita income, societal backwardness, low savings,
etc. But the new tax structure, good monsoon, government
regulation on pricing has created disposable incomes. Today
the rural customer spends money to get value and is aware of
the happening around him.
• ➢ Traditional Outlook: Villages develop slowly and have a
traditional outlook. Change is a continuous process but most
rural people accept change gradually. This is gradually
changing due to literacy especially in the youth who have
begun to change the outlook in the villages.

• ➢ Rising literacy levels: It is documented that approximately
45% of rural Indians are literate. Hence awareness has
increased and the farmers are well-informed about the world
around them. They are also educating themselves on the new
technology around them and aspiring for a better lifestyle.
• ➢ Diverse Socioeconomic background: Due to dispersion of
geographical areas and uneven land fertility, rural people have
disparate socioeconomic background, which ultimately affects
the rural market.

• ➢ Infrastructure Facilities: The infrastructure
facilities like cemented roads, warehouses,
communication system, and financial facilities are
inadequate in rural areas.
• Hence physical distribution is a challenge to marketers
who have to find innovative ways to market their
products. As part of planned economic development,
the government is making continuous efforts towards
rural development.
• In this age of liberalization, privatization and
globalization, rural market offers a big attraction to the
marketers to explore markets that are untapped.

Challenges or Roadblocks of Indian
Rural Markets
• There are several roadblocks that make it difficult to progress
in the rural market.. The major problems are listed below.
• 1. Standard of Living: The number of people below the
poverty line is more in rural markets. Thus the market is also
underdeveloped and marketing strategies have to be different
from those used in urban marketing.
• 2. Low Literacy Levels: The low literacy levels in rural areas
leads to a problem of communication. Print media has less
utility compared to the other media of communication.
• 3. Low Per Capita Income: Agriculture is the main source of
income and hence spending capacity depends upon the
agriculture produce. Demand may not be stable or regular.

4. Transportation and Warehousing: Transportation is one of the biggest
challenges in rural markets. As far as road transportation is concerned,
about 50% of Indian villages are connected by roads.
• However, the rest of the rural markets do not even have a proper road
linkage which makes physical distribution a tough task. Many villages are
located in hilly terrains that make it difficult to connect them through roads.
• Most marketers use tractors or bullock carts in rural areas to distribute their
products.
• Warehousing is another major problem in rural areas, as there is hardly any
organized agency to look after the storage issue. The services rendered by
central warehousing corporation and state warehousing corporations are
limited only to urban and suburban areas.

5. Ineffective Distribution Channels The distribution chain is
not very well organized and requires a large number of
intermediaries, which in turn increases the cost and creates
administrative problems.
Due to lack of proper infrastructure, manufacturers are reluctant
to open outlets in these areas. They are mainly dependent on
dealers, who are not easily available for rural areas. This is a
challenge to the marketers.
6. Many Languages and Diversity in Culture Factors like
cultural congruence, different behavior and language of the
respective areas make it difficult to handle the customers.
Traits among the sales force are required to match the various
requirements of these specific areas.

7. Lack of Effective Communication System: Quick
communication is the need of the hour for smooth
conduct of business, but it continues to be a far cry in
rural areas due to lack of communication facilities
like telegraph and telecommunication systems etc.
8. Spurious Brands: Cost is an important factor that
determines purchasing decision in rural areas. A lot of
spurious brands or look-alikes are available,
providing a low cost option to the rural customer.
Many a time the rural customer may not be aware of
the difference due to illiteracy.

9. Seasonal Demand: Demand may be seasonal due to
dependency on agricultural income. Harvest season
might see an increase in disposable income and hence
more purchasing power.
10. Dispersed Markets: Rural population is highly
dispersed and requires a lot of marketing efforts in
terms of distribution and communication. The entire
points discussed above offer challenges to the
marketer.

Solutions to Problems of Rural Markets
• To solve the problems of rural markets in India, the following
suggestions can be used by marketers.
• 1. Regarding the problems of physical distribution, the
marketer may have a joint network of stockiest/ clearing-
cum-forwarding (C&F) agents at strategic location for
facilitation of physical distribution for its products in the rural
market.
• The main advantage of this scheme is that the costs of physical
distribution can be shared by the companies and stockists. The
combination of different modes of transport based on
availability of trucks will be beneficial to the companies.

• Presently, bullock-cart plays a very vital role in rural
distribution where the roads are not available. Some of the
leading companies use delivery vans in rural areas for
resolving the distribution problems in rural market.
• The delivery van takes the products to the retail shops in every
corner of the rural market and it enables the company to
establish direct sales contact with majority of the rural
consumers which helps in sales promotion.
• 2. The rural market is composed of a number of retail sales
outlets along with fair price shops under the public distribution
system.
• Fertilizer companies have opened their outlets for proper
distribution of fertilizer among the farmers. Similarly, the
companies dealing in consumer goods can apply this model.

• It is suggested that the government should encourage private
shopkeepers and cooperative stores to come forward and
establish their business in rural areas instead of the weekly
market known as weekly bazaar.
3. To solve the problems of sales force management, it is
suggested that the company takes due care in the recruitment
and selection of sales people because the traits they require are
different from urban and suburban sales persons.
• For the rural markets, only those sales people should be
considered for selections who are willing to work in rural
areas. They must be aware of the local language and must have
the patience to deal with rural customers and can discharge the
duties of a bare-footed salesman.

• Administration of such a large and scattered sales force,
supervising and supporting them in sales calls, guiding them,
attending to their official and personal problems, and
motivating them for better results should be an exacting task
for the sales manager. Thus, the people operating in rural areas
should invariably be from the rural background and should
have a missionary zeal to serve the rural masses.
4. With reference to marketing communication in rural areas, the
company should use organized media-mix like TV, Radio,
cinema and POP (point of purchase). Television is gaining
popularity in the rural areas but due to poor supply of
electricity, radio is performing significantly better.

• Since, the rural people need demonstration, short feature films
with disguised advertisement messages, direct advertisement
films and documentaries that combine knowledge and
advertisements will perform better rural marketing
communication.
• Here the companies may also use audiovisual publicity vans,
which may sell the products with promotion campaign. To
attract the rural consumers, companies can organize village
fairs, dance and drama shows, group meetings to convince the
rural consumers about the products and services. In most
Indian villages, there are some opinion leaders.

• For the rural markets, only those sales people should
be preferred for selection who is willing to work in
rural areas like Sarpanch, Pradhan and other elderly
persons. They can be approached by the marketers to
propagate their messages; these persons can prove to
be effective communicators within the rural masses.

THANK YOU

Marketing Management

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